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Learn how to expose a business when most of the patrons are paying cash and keeping the books clean. An article by Parente Randolph Accountants & Consultants

The client’s husband owned a pharmacy. We represented the wife. The pharmacy was located in Brooklyn. The principal assignment was an evaluation of the lifestyle costs before the separation and a reconstruction of income to support the lifestyle.

Key issues:

The pharmacy was in a dangerous part of Brooklyn. The wife alleged that the husband had significant cash income and that he paid numerous people off the books. The books of the pharmacy were disheveled and located in a dark basement with but a single light bulb for light.

The lifestyle was heavily funded with the use of cash. The pharmacy reported virtually no net income, and the owner took out an extremely modest salary.

Methodology/strategy:

We met with the wife who apparently had gone through a prior messy divorce. She was prepared for this one, however, because she had kept meticulous records of cash transactions and had kept receipts for things acquired with cash. We used the clients documents to reconstruct the lifestyle and add to the cash receipts the activity that we observed in checks and credit cards. To this, we added the obvious line items of lifestyle that appeared to not exist such as telephone.

We attempted to locate the opportunity for the obtaining of cash at the pharmacy recognizing that a significant portion of the pharmacy’s revenues were from prescription drugs. Using records of purchases of non prescription drugs and using current selling prices, we were able to quantify certain critical areas where it was clear that the revenues were not being reflected properly.

We also looked to verify the amount of revenues being reported from the insurance companies versus the deposits by the pharmacy.

Significant findings:

We were successful in reconstructing the lifestyle.

We were successful in demonstrating that the husband was using his savings account to cash checks made payable to the pharmacy. The husband did not realize that the bank made a notation in their records each time he cashed a check using the balance in his savings account.

From this we were able to quantify tens of thousands of dollars of income received in the form of checks by the pharmacy but not recorded as revenues.

We were successful in demonstrating that the pharmacist had committed Medicare fraud by claiming to fill more prescriptions for patients that he never filled.

We did this by comparing the submissions that the pharmacy made to the government versus the log book of patients who signed when they picked up their prosciptions.

We observed during our visit that the pharmacy was quite busy and that there were many employees working the store. This despite the fact that there were only the store owner and two employees on payroll.

Results:

We proved at trial the lifestyle.

We proved at trial the use of checks aginst the savings account.

We proved at trial the unreported revenues from cigarette sales.

We proved at trial the Medicare fraud.

The case was settled to the benefit of our client.

ParenteBeard LLC. is a firm of Certified Public Accountants and Business Consultants in New York City.